P.Rama Krishna, Hyd., Hyderabad V. Addl.CIT, Range-12, Hyderabad, Hyderabad

ITA 284/HYD/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 6314 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-07-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 08-06-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 20-03-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: K J RAO
• Assessee Lawyers: PRAMOD AVADHANI
• Keywords: Business income; Transactions in derivatives

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SMT P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 284/HYD/2015 ASSESSMENT YEAR: 2008-09 P. RAMAKRISHNA, HYDERABAD. PAN AAQPP 7087 C VS. ADDL. COMMISSIONER OF INCOME-TAX, RANGE 12, HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI PRAMOD AVADHANI REVENUE BY : SHRI K.J. RAO DATE OF HEARING 14-07-2016 DATE OF PRONOUNCEMENT 20-07-2016 O R D E R PER S. RIFAUR RAHMAN, A.M.: THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST T HE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX(A) - 1, HYDE RABAD FOR AY 2008-09. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE FILED HIS RETURN OF INCOME FOR THE AY 2008-09 ON 24/10/2008 A DMITTING THE TOTAL INCOME OF RS. 38,85,856. THE RETURN WAS PROCESSED U /S 143(1). LATER THE CASE WAS SELECTED FOR SCRUTINY THROUGH CASS. 2.1 THE AO NOTED THAT THE ASSESSEE HAS SHOWN AN AMO UNT OF RS. 37,06,522/- AS SHORT TERM CAPITAL GAINS ON SALE OF SHARES AND AN AMOUNT OF RS. 4,34,090 AS SHORT TERM LOSS ON SALE O F DERIVATIVES. AFTER SETTING OFF THE SAID LOSS, THE ASSESSEE HAS SHOWN A N AMOUNT OF RS. 32,32,432/- AS SHORT TERM CAPITAL GAIN AND OFFERED THE TAX @ 10% AS PER THE PROVISIONS OF SECTION 111A OF THE IT ACT, 1 961. 2 ITA NO. 284/H/15 P. RAMAKRISHNA, HYD. 2.2 ON EXAMINATION, THE AO NOTICED THAT THE ASSESSE E IS PURCHASING AND SELLING THE SHARES ON REGULAR BASIS. IN FEW CAS ES THERE WERE CASES WHEREIN THE SHARES WERE PURCHASED AND SOLD ON THE SAME DAY. IN FEW CASES THE SHARES WERE HELD FOR EVEN ONE DAY. THE DETAILS OF SUCH SHARES WERE AS UNDER: S.NO. NAME OF THE SCRIP DATE OF PURCHASE DATE OF SALE CAPITAL GAIN (RS.) 1 APTECH TRAINING LTD. 11/07/2007 11/07/2007 4,287 2 GEI. HAMON INDIA LTD. 27/07/2007 27/07/2007 343 3 HINDUSTAN OIL EXPLORATIONS 05/04/2007 05/04/2007 951 4 -DO- 18/04/2007 18/04/2007 6,345 5 -DO- 18/05/2007 18/05/2007 14,264 6 HYDERABAD INDU LTD. 26/04/2007 26/04/2007 15,492 7 LIC HOUSING FINANCE LTD. 25/06/2007 25/06/2007 (-)360 8 MIC ELECTRONICS LTD. 06/06/2007 06/06/2007 8,291 9 -DO- 13/06/2007 13/06/2007 25,483 10 -DO- 21/06/2007 21/06/2007 7,624 2.3 REFERRING TO THE ABOVE, THE AO OBSERVED THAT TH E ASSESSEE IS INVOLVING IN TRADING OF SHARES ON A REGULAR BASIS A ND DERIVING THE PROFIT/LOSS REGULARLY. IT ALSO SHOWS THAT THE ASSES SEE HAS NO INTENTION TO KEEP THE SAID EQUITY SHARES AS INVESTMENT WHICH ATTRACTS CAPITAL GAINS DEPENDING ON THE PERIOD OF HOLDING. HE, THERE FORE, ASKED THE ASSESSEE TO SUBMIT HIS EXPLANATION AS TO WHY THE PR OFIT DERIVED ON SALE OF ABOVE SHARES SHALL NOT BE TREATED AS BUSINE SS INCOME AS AGAINST SHORT TERM CAPITAL GAIN ADMITTED BY THE ASS ESSEE. 2.4 AO AFTER CONSIDERING THE SUBMISSIONS OF THE ASS ESSEE AND REFERRING TO THE PROVISIONS OF SECTION 111A AS WELL AS BOARDS CIRCULAR NO. 4/2007, DATED 15/06/2007, HELD THAT THE INTENTI ON OF THE ASSESSEE IS TO MAKE PROFIT BY SALE OF SHARES AND HE HAD NO I NTENTION TO HOLD THE SHARES FOR A LONG PERIOD TO EARN DIVIDENDS. HE, THE REFORE, TREATED THE 3 ITA NO. 284/H/15 P. RAMAKRISHNA, HYD. CLAIM OF SHORT TERM CAPITAL GAINS OF RS. 32,72,432/ - U/S 111A WAS REJECTED AND THE SAME WAS TREATED AS BUSINESS INCOM E OF ASSESSEE. 3. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN AP PEAL BEFORE THE CIT(A). 4. BEFORE THE CIT(A), THE ASSESSEE SUBMITTED AS UND ER: A) THAT THE APPELLANT IS A SALARIED EMPLOYEE, THE SHARES WERE PURCHASED FOR THE PURPOSE OF INVESTMENT FOR EARNIN G PROFIT. B) THAT THE APPELLANT WAS NOT INVOLVED IN THE BUSI NESS OF BUYING AND SELLING OF SHARES. C) THAT THE ASSESSING AUTHORITY HAS TAKEN FEW TRAN SACTIONS WHERE PURCHASES AND SALES WERE MADE ON THE SAME DATE TO S UIT HIS VIEW AND NOT LOOKED INTO OTHER TRANSACTIONS WHERE T HERE WAS A GAP BETWEEN PURCHASES AND SALES. D) AS PER THE BOARDS CIRCULAR WHERE THE PURCHASES AND SALE OF SHARES CONSTITUTE INVESTMENT OR TRADING SHALL BE JU DGED CASE TO CASE TAKING INTO MANY FACTS INTO ACCOUNT, SUCH AS I NTENTION OF THE ASSESSEE, VOLUME AND FREQUENCY OF TRANSACTIONS, TIM E AND EFFORT DEVOTED. E) THE APPELLANT IS A SALARIED PERSON AND HAS SHOW N SHARES AS INVESTMENT AND NOT AS A STOCK-IN-TRADE. THEREFORE, THE INCOME SHALL BE ASSESSED UNDER THE HEAD SHORT TERM CAPITA L GAIN. 5. THE CIT(A) OBSERVED THAT THE NUMBER OF SCRIPS T RADED BY ASSESSEE WERE 94 AND THE NUMBER OF TRANSACTIONS PER MONTH WERE AS UNDER: S.NO. MONTH PURCHASES SALES 1. APRIL, 2007 28 13 2. MAY, 2007 25 30 3. JUNE, 2007 14 19 4. JULY, 2007 11 32 5. AUGUST, 2007 5 9 6. SEPTEMBER, 2007 0 - 4 ITA NO. 284/H/15 P. RAMAKRISHNA, HYD. 5.1 THE CIT(A) ANALYSED THE TRANSACTIONS OF ASSESSE E AS UNDER: THE QUANTUM OF PURCHASES WERE RS. 3,76,49,515/- THE QUANTUM OF SALES WERE RS. 2,46,29,142/- THE SHORTEST PERIOD OF HOLDING SHARES - 1 DAY THE LONGEST PERIOD OF HOLDING SHARES 77 DAYS (HY DERABAD INDUSTRIES PURCHASED ON 09/04/07 AND SOLD ON 11/07 /07) THE APPELLANT ALSO TRADED IN FUTURES & OPTIONS. MOST OF THE SHARES WERE PURCHASED AND SOLD WITHIN A WEEK. 5.2 IN VIEW OF THE ABOVE OBSERVATIONS, THE CIT(A) H ELD THAT THE NUMBER OF SHARES, FREQUENCY OF TRANSACTIONS, VOLUME OF BUSINESS CLEARLY INDICATE THAT THE ASSESSEE CARRIED ON TRADI NG ACTIVITY. HE, THEREFORE, CONFIRMING THE ACTION OF THE AO IN TREAT ING THE INCOME OF THE ASSESSEE AS BUSINESS INCOME. 6. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US: 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) -II, HYDERABAD, IS ERRONEOUS ON FACTS AND IN LAW. 2. THE ASSESSING OFFICER AS WELL AS COMMISSIONER OF INCOME TAX (APPEALS) -II, HYDERABAD, ERRED IN HOLDING THAT THE INCOME OF SHORT TERM CAPITAL GAINS IS 'BUSINESS INCOME' ON TH E GROUND THAT THE APPELLANT DID NOT INVEST IN SHARES BUT CARRIED ON TRADING ACTIVITY ON REGULAR BASIS. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN TREATING THE APPELLANT AS 'TRADER' AND NOT AS 'INVE STOR' AND CONFIRMING THE ORDER OF THE ASSESSING OFFICER WITHO UT CONSIDERING THE FACTS OF THE CASE AND INTENTION OF THE APPELLAN T TO KEEP THE SHARES AS INVESTMENT. 7. BEFORE US, THE LD. AR SUBMITTED THAT NEITHER THE A.O. NOR THE LEARNED CIT(A) HAS APPRECIATED THE FACTS OF THE CAS E. THE ASSESSEE IS A SALARIED EMPLOYEE. HIS INTENTION IS ONLY TO INVES T IN THE SHARES FOR EARNING PROFIT. HE HAS NO INTENTION OF TRADING IN T HE SHARES. HE SUBMITTED THAT THE AO AND CIT(A) HAVE TAKEN A FEW TRANSACTIONS INTO 5 ITA NO. 284/H/15 P. RAMAKRISHNA, HYD. ACCOUNT AND DECIDED THAT THE APPELLANT HAD DONE TRA DING ACTIVITY AND FACTS OF THE CASE WERE NOT CONSIDERED PROPERLY. 7.1 LD. AR SUBMITTED THAT IT IS TRUE THE FREQUENCY AND VOLUME OF TRANSACTION IS ONE OF THE GUIDING FACTORS TO FIND O UT AS TO WHETHER APPELLANT DEALS IN SHARES AS TRADING ASSETS OR HOLD SHARES AS INVESTOR BUT CERTAINLY NOT A CRITERIA. HE SUBMITTED THAT THE ASSESSEE WAS IN FULL TIME EMPLOYMENT OF A COMPANY AND WAS NOT HAVING TIM E TO CARRY ON BUSINESS OF PURCHASE AND SALE OF SHARES. HE SUBMITT ED THAT WITHOUT BRINGING ON RECORD CONTRARY MATERIAL, THE A.O., AND THE COMMISSIONER OF APPEALS CANNOT CHANGE THE INTENTION AND MANNER O F INVESTMENT MADE BY THE APPELLANT. 7.2 LD. AR SUBMITTED THAT THE INTENTION OF THE ASSE SSEE, A SALARIED PERSON AT THE TIME OF PURCHASE OF SHARES IS CLEAR T HAT IT WAS FOR PURPOSE OF INVESTMENT AND NOT FOR TRADING IN SHARES . FOR THE PRECEDING ASST YEARS VIZ: 2006-07 AND 2007-08 AND FOR THE SUB SEQUENT YEARS 2009-10 AND 2010-11 THE RETURNS OF INCOME SHOWING T HE PROFIT AS INCOME FROM 'SHORT TERM CAPITAL GAINS' FROM THE PUR CHASE AND SALE OF SHARES WERE ACCEPTED BY THE DEPARTMENT. HE, THEREFO RE, CONTENDED THAT HOW COULD THE DEPARTMENT TAKE INCONSISTENT STA ND FOR THE ASST YEAR 2008-09 (UNDER CONSIDERATION) CONTRARY TO THE CONSIDERED VIEW BOTH FOR THE PRECEDING AS WELL AS THE SUBSEQUENT YE ARS. SINCE THE INTENTION OF THE ASSESSEE MAINLY WAS TO PURCHASE SH ARES FOR HOLDING THEM AS 'INVESTMENT' ONLY THE GAINS ARISING FROM TH E SALE OF SHARES IS ASSESSABLE UNDER THE HEAD 'SHORT TERM CAPITAL GAINS ' AND NOT UNDER THE HEAD 'INCOME FROM BUSINESS'. 8. THE LD. DR, ON THE OTHER HAND, RELIED ON THE ORD ERS OF REVENUE AUTHORITIES. 9. CONSIDERED THE SUBMISSIONS OF THE PARTIES AND PE RUSED THE MATERIAL FACTS ON RECORD AS WELL AS THE ORDERS OF R EVENUE AUTHORITIES. THE ASSESSEE HAS INDULGED IN PURCHASE & SALE OF SHA RES, NO DOUBT WITH THE INTENTION OF MAKING PROFIT BUT INTENTION A ND TIMING OF HOLDING 6 ITA NO. 284/H/15 P. RAMAKRISHNA, HYD. OF INVESTMENTS DETERMINES THE NATURE OF TRANSACTION S. IT IS WORTH TO NOTE THAT ASSESSEE ALSO ENTERED INTO F&O TRANSACT IONS, WHICH CLEARLY DEMONSTRATES THAT THE INTENTION WAS TO MAKE QUICK M ONEY/PROFIT. THE FREQUENCY OF TRANSACTIONS ARE SUCH THAT THE MINIMAL HOLDING WAS 1 DAY AND MAXIMUM WAS 77 DAYS. THIS ALSO DEMONSTRATES THA T THE INTENTION OF THE ASSESSEE WAS NOT FOR MAKING INVESTMENT BUT R ATHER MAKING QUICK PROFIT, WHICH IS NOTHING BUT INDULGING IN BUS INESS. THERE IS NO DOUBT THAT ALL THE TRANSACTIONS ARE CONDUCTED WITH THE PROFIT INTENTION ONLY. BUT, THE INTENTION TO INVEST FOR HOLDING AS I NVESTMENT WILL QUALIFY FOR DEDUCTION U/S 111A WHEREAS THE INTENTION IS TO MAKE QUICK PROFIT, WILL DEFINITELY GIVES THE IMPRESSION THAT IT WAS CA RRIED ON AS SHORT TERM BUSINESS TO MAKE QUICK MONEY. AS HELD IN THE CASE O F CIT VS. REWA SHANKAR A. KOTHARI [2006] 155 TAXMANN 214 (GUJ.), W HERE ON FINDING THAT THERE WAS A LONG GAP BETWEEN DATE OF ACQUISITI ON OF SHARES AND THEIR SALES, ALSO SHARES HAVING BEEN SHOWN AS INVES TMENTS IN WEALTH TAX RETURNS RIGHT FROM ITS PURCHASE, IT WAS HELD TH AT PROFITS FROM SALE OF SHARES WERE REQUIRED TO BE TAXED UNDER CAPITAL G AINS AND NOT AS BUSINESS INCOME. IN THE PRESENT CASE, IT IS QUITE O PPOSITE TO THE ABOVE DISCUSSION. HENCE, WE ARE INCLINED TO CONCLUDE THAT THE TRANSACTIONS ARE IN THE NATURE OF BUSINESS AND NOT AS INVESTMENT . ACCORDINGLY, WE HOLD THAT THE ACTION OF THE AO IN THIS CASE IS APPR OPRIATE AND THE APPEAL OF THE ASSESSEE IS DISMISSED. 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMIS SED. PRONOUNCED IN THE OPEN COURT ON 20 TH JULY, 2016 SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RAHM AN) JUDICIAL MEMBER A CCOUNTANT MEMBER HYDERABAD, DATED: 20 TH JULY, 2016 KV 7 ITA NO. 284/H/15 P. RAMAKRISHNA, HYD. COPY TO:- 1) P. RAMAKRISHNA, C/O M/S MURTHY & KANTH, CAS., F LAT NO. 113, SOVEREIGN SHELTERS, 11-4-650, NILOUFER HOSPITAL ROAD, LAKDIKAPUL, HYDERABAD 500 004. 2) ADDL. CIT, RANGE 12, AAYAKAR BHAVAN, BASHEERBA G, HYDERABAD 3) CIT(A) - 1, HYDERABAD 4) CIT , HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD.